Argentina, a nation once ranked among the wealthiest in the world, has found itself grappling with severe economic challenges over the past 25 years. Then, one year ago, provocative libertarian economist Javier Milei was inaugurated as its new president.
Known for his flamboyant persona and radical views, Milei is one of the most polarising figures in global politics, celebrated by some as a visionary reformer and dismissed by others as “El Loco” (“the mad one”). He pledged to take a “chainsaw” to the state and promote a free-market approach.
His pro-capitalism stance extends to the promotion of culture wars. Last month, he fired his foreign secretary for voting along with 186 other countries against the US embargo on Cuba at the United Nations. Only the US and Israel voted against it. He withdrew Argentina’s delegation of negotiators to the UN climate summit in Baku, claiming human-caused climate change is “a socialist lie”.
Yet Milei owes his 2023 victory to Argentina’s deep economic crisis. It was an economy suffering from the third highest inflation rate in the world, at 211% year on year, a poverty rate north of 40% (it’s now climbed even higher), and an economy in crisis for decades.
Argentina’s economic woes are deeply rooted. Once one of the world’s richest nations thanks to its fertile Pampas plains, its prosperity was built on agricultural exports and integration into global markets.
Political instability, excessive protectionism and fiscal mismanagement disrupted its trajectory. Peronism, a political movement based on economic independence and social justice, has dominated Argentine politics for decades. While it lifted the working class, critics argue it entrenched inefficiency and dependence on the state.
By 2023, Argentina’s crisis had reached unprecedented levels and the peso had lost most of its value.
Argentines turned to Milei, an outsider who pledged to dismantle the state’s bloated bureaucracy, privatise key sectors and adopt policies rooted in libertarian principles.
Sweeping reforms and painful cuts
Now in power for a year, he has slashed government spending by a third, dismantling price controls and cutting subsidies on energy and transport. Last December, he devalued the peso by 54%.
Around 30,000 state jobs were cut, as were more than half of government ministries. Milei also allowed inflation to eat into the real value of pensions and salaries. This has generated fiscal surpluses, but also deepened the country’s worst economic crisis in two decades.
The result is unprecedented levels of poverty. As the cost of food and basic products increased, around 53% of Argentines now live in poverty – up from around 42% in 2023 and the highest level in 30 years. Another 15% of the population is in “extreme poverty”. An extra 5.5 million Argentines became poor during Milei’s first six months in office.
Despite the pain, Milei’s approval ratings have remained stable at around 50%. His success seems to rest on his unrelenting attacks on the country’s establishment and workers’ unions. The only large-scale protests occurred when Milei imposed cuts to free public universities. Argentines seem to have accepted the doctor’s prescription.
Milei’s key legislative victory was his controversial “omnibus” reform bill. This was originally aimed at slashing government spending, privatising public entreprises (whether or not they were profitable) and enforcing a zero-deficit policy.
Although the bill was watered down, economic indicators improved significantly. Monthly inflation dropped to 2.7% in October from its peak of 26% last December. The peso has strengthened considerably and is now overvalued, hurting exporters and raising the prospect of a devaluation – and with it, more inflation. Argentina’s country risk index (which measures the risk of investing in a state) has fallen significantly.
But the economy is not out of the woods. Growth remains elusive – the IMF forecast a 3.5% economic contraction this year. Growth of 5.2% next year will only return per-capita GDP, a measure of individual wealth, to where it was by the time COVID lockdowns ended in 2021. Reducing inflation further won’t be easy, as it has hovered around the 3% monthly level since July.
Meanwhile, Milei’s 2025 budget proposal aims for a budget surplus of over 1.3% of the country’s GDP, requiring further spending cuts. But calls to restart frozen public works and boost pensions and wages will inevitably grow louder next year.
And Argentina still has heavy capital controls, making it hard for investors to get money out of the country. They will think twice before investing.
Meanwhile, the opposition is waking up. Milei’s veto of the bill increasing university budgets brought 250,000 people out in protest in November, prompting some to suggest the president had miscalculated.
Former president Cristina Fernández de Kirchner, still Argentina’s dominant leftist, is poised to take over the leadership of main Peronist party ahead of next year’s midterm elections. While her influence has greatly diminished, she still enjoys reasonable approval ratings. Both Kirchner and Milei are polarising figures, so it is unclear if her return will help the left.
The re-election of Donald Trump could prove to be Milei’s best card. While Argentina is a small trade partner, Milei will leverage his relationship with the US president-elect to convince the IMF to roll over the remainder of the US$44 billion debt (£35 billion) acquired in 2018 during Trump’s first term in office. Another US$10 billion is needed to bolster the central bank’s international reserves which remain critically low.
This source of money will be critical for Milei to start lifting capital controls. Only then can economic stability translate into sustainable growth.
Nicolas Forsans does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
